The regulator’s lawsuit detailed failures that led to Westpac processing funds for paedophiles and blamed an “indifference” among senior management towards compliance.
The allegations sent the bank,its customers,staff and shareholders into turmoil. Chief executiveBrian Hartzer was axed,and his replacement took out full-page advertisements in major newspapers promising to do better.
While Westpac’s reaction to the scandal was widely covered,CBA’s was not. CBA quietly launched a secret internal project to weed out customers that could be suspected of paying for child exploitation material. A team of about 30 senior analysts worked for 72 hours to identify caucasian males,aged 40 years or over,sending between $500 to $1500 to south-east Asian countries,particularly the Philippines. These customers’ accounts were closed or referred to AUSTRAC. “They didn’t want any more fines,” says one analyst on the team.
![Westpac is one of many banks around the world to fall foul of anti-money laundering laws,but until recently that didn’t mean much in Australia.](https://static.ffx.io/images/$width_300%2C$height_150/t_crop_auto/t_sharpen%2Cq_auto%2Cf_auto/e39316c65e234c7f7e219988d17e726b863c0393)
Westpac is one of many banks around the world to fall foul of anti-money laundering laws,but until recently that didn’t mean much in Australia.Credit:Getty Images
Six months on,those on the frontlines say the change at Westpac is noticeable.
Westpac has sought to address the lack of accountability by becoming the only big four bank to create an executive role dedicated to financial crime,appointing Les Vance last May.
Insiders say this has tangibly changed the bank’s approach to risk,where concerns are taken seriously and escalated to the very top where necessary. “When you have a higher seat at the table,you pretty much have full support from the board,” says one manager working in financial crime.
Westpac says it does not rely on temporary contractors in its core financial crime team – something staff say prevents high turnover and creates a cohesive culture. “Everyone comes in focused,has a sense of security. I think that definitely helps,” says a Westpac employee currently working full-time in financial crime compliance.
“I work at Westpac now,their technology compared to CBA’s is medieval”
Westpac employee
And while the bank has made progress in updating its technology,the full scale of what is needed is still many years away. Westpac is in the business of poaching staff from CBA by offering more money or permanent contracts. But some who have made the jump say they regret it.
“You have to leave CBA to understand how awesome their tech is,” says one. “I work at Westpac now,their technology compared to CBA’s is medieval.”
Westpac has many subsidiaries – St George,Bank of Melbourne,BT,Rams,Bank of South Australia – that have not been integrated into one system,meaning staff need to juggle multiple platforms to investigate cases that appear suspicious.
One employee with experience at both banks says this set-up means it takes between two and three times longer to complete the same task compared to CBA. Another said the cumbersome technology had made the job a nightmare.
“I would love to go back to CBA. I feel like I have made a mistake.”
‘Long rope’
The 70-year-old customer who became a victim of cryptocurrency fraud is one very small part of NAB’s struggles with preventing financial crime.
As revealed in this masthead this month,NAB has launched a mammoth project dubbedProject Apollo to manually sift through hundreds of thousands of customer accounts to make sure they had valid and verified identification documents.
A backdated error in NAB’s processing meant a large portion of customers were not properly identified,hence they were incorrectly risk-rated and did not trigger the right alerts needed to file reports to AUSTRAC.
Fulfilling ‘know your customer’ (KYC) requirements is the backbone of any anti-money laundering regime. Personal details need to be updated over the course of a customer’s lifecycle. Failure to do so leaves the door open for criminals to buy bank accounts on the black market,through which they can clean dirty money.
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NAB has struggled with getting its KYC process right for years. In 2018,the bank hired Sharon Campbell from Europe to sort it out once and for all.
Campbell had spent almost a decade at the UK’s feared corporate cop – the Financial Services Authority – where she rose in the ranks to become the head of financial crime and intelligence.
Campbell was appointed NAB’s executive general manager of financial crime operations and transformation,a lengthy title for a challenging role. Arriving with a new strategy concocted with help from a big four accounting firm,she wasted little time in making her presence felt.
“The changes Sharon Campbell brought in were extensive,vast and felt across the entire financial crime operations,” says one former employee.
Campbell introduced new processes that increased the amount of customer information collected to paint a detailed picture of where money was coming from and going to. Some say this lifted standards,others say it blew out processing times to unsustainable levels.
To keep up,NAB went on a hiring spree that caused its financial crime team to swell by the hundreds.
While improving people and processes are just one part of the equation,arguably technology is the most important. Insiders say NAB’s patchwork of technology systems meant the root cause of its AML headaches was not being addressed and mistakes were repeated.
![NAB has been accused of serious non-compliance issues with anti-money laundering laws.](https://static.ffx.io/images/$width_300%2C$height_150/t_crop_auto/t_sharpen%2Cq_auto%2Cf_auto/b10768166d8f02c7730fa2f52bc2c0fd005dec22)
NAB has been accused of serious non-compliance issues with anti-money laundering laws.Credit:Pat Scala
AUSTRAC rejected multiple internal reviews of NAB’s KYC revamped policies. Extensions were granted but the regulator’s patience has now worn thin. This month,AUSTRAC sent a letter informing NAB the matter had been escalated to its enforcement team.
NAB has since pulled off a major victory in hiring former AUSTRAC boss Paul Jevtovic to join its ranks. It has invested $800 million since 2017 to improve its financial crime operations and staff in these teams have increased by six-fold.
Chief executive Ross McEwan is taking the challenge seriously. He inked a deal in April with the AFP to improve information sharing and meets regularly with AUSTRAC. “We take the feedback. We’re not perfect. They know that,” McEwan told Senate estimates in April. “I would consider the relationship is constructive. We have the same purpose in mind. But,as an organisation,we still have quite a bit to do and we’re putting in the resources and the technology to be better at it.”
But some within the bank are concerned AUSTRAC has given NAB a “long rope”. “Why is the regulator granting so many extensions? If there is no regulatory action,there is no motivation to fix it.”
Friend or foe?
Much of AUSTRAC’s hot-headed reputation emerged under the leadership of Jevtovic,who was chief executive from 2014 to 2016.
![Paul Jevtovic is highly regarded within the ranks at AUSTRAC and preceded current CEO Nicole Rose.](https://static.ffx.io/images/$width_300%2C$height_150/t_crop_auto/t_sharpen%2Cq_auto%2Cf_auto/ce51f439c0dad74ebab3a9b1d760540ed29bc533)
Paul Jevtovic is highly regarded within the ranks at AUSTRAC and preceded current CEO Nicole Rose.Credit:Janie Barrett
Jevtovic had spent the first 28 years of his working life in the Australian Federal Police,working across drugs,fraud and serious crime. “I most enjoyed working on organised crime,” he says on LinkedIn.
When the Melbourne-educated executive joined AUSTRAC it was a sleepy,risk-averse regulator with a “culture of comfort” that mostly operated behind the scenes.
Those who worked with Jevtovic say he could be abrasive,didn’t take excuses lightly and had a “heavy-handed” approach to the job.
But above all,Jevtovic was respected and widely recognised as transforming the regulator for the better,by tightening the relationship with law enforcement and scaling up its technology.
At the time,there was chatter in Canberra about merging AUSTRAC with other financial regulators like the Australian Securities and Investments Commission (ASIC), and Jevtovic was determined to prove its worth as a standalone operator.
AUSTRAC is smaller by comparison to both APRA and ASIC in terms of revenue and staffing levels,which comes with its pros and cons. It is nimble and can make changes quickly,but resourcing limits the number of enforcement investigations that can be undertaken at any given time.
Jevtovic poured money into upgrading technology,ensuring processes were automated where possible and analysts had access to top of the range platforms. “People were amazed by the speed he was running at. He gave the organisation the injection it needed,” says one former senior AUSTRAC employee.
In 2017,AUSTRAC appointed Nicole Rose as chief executive,who had an expansive career in law enforcement that saw her win the Public Service Award for her services to policing in 2013.
Those who have worked under both bosses claim they have brought starkly different leadership styles to the role. Where Jevtovic was front of stage,Rose prefers to promote others and foster collaboration.
Rose’s leadership style has been described as “second to none” and was instrumental in the Westpac prosecution,but many say she is more cautious. Banking sources are fearful this will allow NAB to get off the hook lightly,compared to its rivals.
But the ability for AUSTRAC to do its job relies on striking a balance between acting as friend and foe. The regulator must be feared,so entities take the laws seriously,but also trusted,with many recent coups stemming from self-reported breaches.
Where Jevtovic was more willing to strike from behind,Rose is careful to walk entities through the process. “You don’t want a regulator to immediately slap you with a fine,escalate things to court. You have to demonstrate the response is warranted,” says one AUSTRAC insider.
While many now believe the regulator is striking the right balance,the federal opposition thinks otherwise.
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Labor Senator Deborah O’Neill successfully garnered enough votes last week to establish a Senate inquiry into the country’s anti-money laundering regime,after blaming AUSTRAC for being reactive and too reliant on the banks.
“We need to look at the overarching regulatory regime,is it appropriate?” Senator O’Neill said.
Interview requests with Westpac and NAB were declined.
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